Frontier Markets and a teaser of what is to come. Peter Elam Håkansson, Chairman and Partner

Frontier Markets and a teaser of what is to come Peter Elam Håkansson, Chairman and Partner

The Frontier Markets

Have the good old Emerging Markets lost their appeal? We remain convinced that Emerging and Frontier Markets present a very attractive investment proposition despite periods of negative market sentiment 86% of world population in emerging markets Appealing demographics 3.5 to 5 bn expected in next 20 years More than 50% of world output in PPP, 20% in real GDP Create more than 60% of the world growth 50% of the world largest economies are Emerging or Frontier Control approx. 75% of land and resources Still far below purchasing power but increasing China middle class as big as US population HSBC, ECB, Blackrock, IMF

Too late to invest in the old Emerging Markets? Still major transition of Emerging Markets capitalization expected with further gravitation of wealth towards these markets making them still highly attractive Only makes up 10% of global capitalization Market Capitalization of Emerging Markets Brazil, 379 Bn USD = Google India, 236 bn USD = Nestlé Indonesia, 82 Bn USD = Goldman Sachs Malaysia, 143 Bn USD = Facebook Poland, 61 Bn USD = Time Warner Russia, 236 Bn USD = Proctor & Gamble Turkey, 55 Bn USD = Starbucks Freefloat adjusted numbers, Economist, Merrill Lynch, Bloomberg

But what position does the new Emerging Markets have? Emerging Markets are far from losing their appeal but the next wave of quickest transition and incremental growth is likely to come from the so called Frontier Markets Commodity bull cycle peak passed, effects; Helped many EMs to a strong start Current phase will benefit next wave Technology shift is accelerating development, effects; GDP growth driven by increased efficiency Some less developed markets have a chance to take frog leaps Trade and enlarged markets Demographics, Frontier Markets forte, play a key role for the long term investment case

Frontier markets, main characteristics There is no universal definition for frontier markets. EMs of 1980s would have been considered as frontiers of today. Per capita income varies significantly within frontier universe. Frontier markets, term first coined in 1992* No universal definition for FMs, but in general: Small markets with relatively high development but not enough to be considered as emerging markets ** Consider politics and market rather than income levels Common characteristics include Currency risk, small, illiquid, non-transparent, poor legal/regulatory infrastructure, high transaction fees FMs can be seen as next-gen emerging markets * The term frontier markets was first coined by Farida Khambata in 1992 while working at International Finance Corporation (IFC) ** The term emerging markets first coined by Antoine W. Van Agtmael of IFC in 1981

Investment rationale for Frontier markets Frontiers are the next-gen emerging markets Reforms and high growth convergence stories Market friendly governments replacing the old ones There is big potential but very little invested in FMs Markets are costly and tricky to access FMs provide unique diversification opportunity However, Frontier indices are still not very good Over representing certain countries and financials Underrepresenting consumer stocks Convergence stories Strong economic growth potential Diversification benefits Overlooked & Underinvested Indices do not reflect true potential Markets highly inefficient

The case for Frontiers; Strong and sustainable growth Several factors underpin the strong expected growth, including Medium and long term GDP growth forecast Growth in working age population Education levels rising Political stability and democratization Source: CITI Investment Research and Analysis. Estimates as of April 2014

Driven by favourable demographics Youngest: 1. Niger (15.1) 2. Uganda (15.2) 3. Mali (16.0) World Median Age by Country Oldest: 1. Japan (46.1) 2. Germany (46.1) 3. Italy (44.5) Source: CIA World Factbook. Teens Twenties Thirties Forties

With attractive valuations Frontier markets trade at a discount to emerging markets Middle East valuations look high but it is also those markets which present a combination of growth and stable currencies 2015e P/E 16 14 12 10 8 6 4 2,9 3,5 5,8 7,1 7,6 9,0 9,3 9,3 9,5 10,3 10,3 10,6 10,6 10,9 12,7 13,0 13,0 13,4 14,0 Balkan and Asian frontiers as well as Nigeria are very attractively valued 2 0 Source: Bloomberg, 16 Oct 2014

Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Frontier Markets still dwarfed by the Emerging Flows to frontier markets are gathering pace as investors diversify and seek growth Frontier Markets still underrepresented asset class taking into account their GDP and population contribution to the global economy Total $ AUM in FMs vs. EMs 1 400 1 200 1 000 800 600 400 $ 1200bn 30 25 20 15 10 200 $ 22bn 5 0 0 Source: Credit Suisse Emerging markets Frontier markets

DEVELOPED SWITZERLAND UNITED KINGDOM USA AUSTRALIA AUSTRIA BELGIUM CANADA DENMARK FINLAND FRANCE GERMANY HONG KONG IRELAND ISRAEL ITALY JAPAN NETHERLANDS NEW ZEALAND NORWAY PORTUGAL SINGAPORE SPAIN SWEDEN EMERGING BRAZIL CHILE CHINA COLOMBIA CZECH REPUBLIC EGYPT GREECE HUNGARY INDIA INDONESIA KOREA MALAYSIA MEXICO PERU PHILIPPINES POLAND QATAR RUSSIA SOUTH AFRICA TAIWAN THAILAND TURKEY UAE FRONTIER ARGENTINA BAHRAIN BANGLADESH BULGARIA CROATIA ESTONIA JORDAN KAZAKHSTAN KENYA KUWAIT LEBANON LITHUANIA MAURITIUS MOROCCO NIGERIA OMAN PAKISTAN ROMANIA SERBIA SLOVENIA SRI LANKA TUNISIA UKRAINE VIETNAM Frontier universe Developed Emerging Frontier East Capital extended frontiers Unclassified

Our plans; What s new and what s not? We see that trends today have a much more global impact than in the past Investor behaviour is changing in line with this We see a gap in the fund offering of a global frontier stock picking strategy based on strong regional expertise In the near future we plan to combine our regional expertise into a broader product with a full tool box To do this we have spent the past year adding to and building on our regional teams

East Capital 16 years of experience in Frontier Markets 16 years in Frontier Markets have thought us valuable lessons and what to avoid Baltics 16 year track record but also most importantly helped us to spot the real long term growth drivers, trends and investment opportunities Balkans 12 year track record Central Asia 12 year track record Current East Capital Universe Middle East investments since 2006 Frontier Asia recently emphasized in East Capital Emerging Asia Fund

How we have added the missing pieces Formation of a team built on the members of the respective regional frontier teams with new added resources Andreas Nabseth added for Africa Prior Africa experience from Swedfund and Lehman Brothers Swati Madhabushi (Indian National) added to Hong Kong team for Asean and South Asia prior experience from UBS Launch of a new research office and hub in Dubai Adding resources to the Eastern European team allowing Emre Akcakmak to focus even more time on the Middle East

The Frontier Market Universe Frontier markets are divided into three major blocks Frontier Markets as defined The two blocks East Capital has done most investments in make up 93% of the investment universe EMEA 79.3% Asia 14.0% LatAm 6.7% To this a number of next frontiers can be added

Applying our experience and investment model A well diversified but fairly compact portfolio of 70-80 stocks will allow for; Real stock picking Global exposure Exposure to the next Frontiers Focus on fast-growing middle class Best way to get exposure to young & growing markets Mind the regulatory risks especially for natural resources Opt for business-friendly governments Stock picking opportunities rather than benchmarking Prioritize sustainable cash flows vs. short term growth Cautious with liquidity, but prefer quality over liquidity Take opportunities on new markets next frontiers early on

Thank you.